Both the value and the volume of mergers and acquisitions in Arkansas rose last year, with the value increasing 11 percent to $9.8 billion and the volume rising 10 percent to 92.
Those big deals — those valued at $9 million or more — also reflected a striking diversity of sectors, ranging from retail and telecommunications to energy, banking and health care. And, as always, big real estate transactions peppered the list.
The $9.8 billion is the total value of those 56 deals whose values were announced or could be learned; the value of 36 of the 92 transactions believed to be above $9 million couldn’t be determined. In addition, not all companies report all transactions.
More: Purchase the complete list.
The biggest deal in 2016 was the purchase by Wal-Mart Stores Inc. of online retailer Jet.com for $3.3 billion. The deal, announced in August, was another in a long line of attempts by the Bentonville behemoth to compete with Amazon. “We’re serious about e-commerce and want to serve customers in the way that they want to shop,” Wal-Mart CEO Doug McMillon said about the buy.
Wal-Mart’s shopping spree has continued into 2017. Jet, through Wal-Mart, bought ShoeBuy, a leading online footwear and clothing retailer, for $70 million in a deal that closed on Dec. 30, 2016, according to the retailer, but that wasn’t announced until after the first of the year. And in a deal announced just last week — and therefore not included on the 2016 list — Wal-Mart bought Moosejaw, an outdoor clothing and gear seller, for $51 million.
Windstream’s $1 billion merger with EarthLink Holdings Corp., an IT services and communications provider based in Atlanta, was the second-largest deal last year, while Murphy Oil Corp.’s $744 million sale of a 5 percent stake in Syncrude Canada was No. 3.
Arkansas Business’ biggest deals list frequently includes a few surprises, mergers and acquisitions that went through largely unnoticed by the press, and this list was no different. In December, private equity firm Charlesbank Capital bought Vestcom Parent Holdings Inc. of Little Rock, parent company of Vestcom International, paying $375 million to Court Square Capital Partners, another private equity company.
Not much is likely to change, said Jeff Weidauer, vice president of marketing and strategy of Vestcom. “We’re private-equity backed. We have been for many years,” he said. “And this is a typical order of events. Normally a private equity company like this will go from one investor group to another every three to four to five years. And so this is just sort of the natural course of events for us.”
Vestcom, which has 300 employees in Arkansas and 800 total nationwide, calls itself “the leading shelf-edge marketing services firm in the industry, which is sort of a fancy way of saying that we provide shelf-edge pricing and marketing materials for most of the major food and drug retailers in the U.S.,” Weidauer said.
Vestcom reported revenue of $275 million in 2015.
Big Year Globally
Worldwide, 2016 saw $3.7 trillion in M&A activity, a 16 percent decrease compared with 2015. However, 2015 had been a record year for mergers and acquisitions, and last year’s activity was still the “third largest annual period for worldwide deal making since records began in 1980,” according to Thomson Reuters, the business information company based in New York.
The volume of deals globally rose 1 percent in 2016, to 46,055 announced transactions.
As in Arkansas, deal-making worldwide was spread throughout business sectors. “Six of 12 major industry sectors each accounted for at least 10% of full year M&A, the most balanced annual sector breakdown since records began in 1980,” Thomson Reuters said in its 2016 “Mergers & Acquisitions Review.”
In the United States, M&A activity fell 17 percent in 2016 compared with 2015, to $1.7 trillion.
The biggest deal in the U.S. announced last year was the $85.4 billion purchase by AT&T of Time Warner. However, the deal drew criticism on the campaign trail from then-candidate (now President) Donald Trump, who said the merger would result in “too much concentration of power in the hands of too few.” The U.S. Justice Department is reviewing the deal.
And in the fourth quarter of 2016, deal-making picked up momentum, with the value of worldwide M&A announced rising 50 percent compared with the third quarter. “Seven of the top 10 deals announced during full year 2016 were announced during the fourth quarter,” the Thomson Reuters review noted.
Arkansas Energy, Banking
Murphy Oil appears several times on the list as the El Dorado company sought last year to improve its balance sheet after a net loss of $2.27 billion in 2015. Last month Murphy Oil announced a full-year 2016 loss of $276 million, and its CEO, Roger W. Jenkins, said, “2016 was a year of improving the company’s North American onshore portfolio while surviving one of our industry’s worst commodity price collapses.”
A number of banking deals also made the list. The largest, at $567.5 million, is the purchase by Simmons First National Corp. of Southwest Bancorp of Stillwater, Oklahoma. The acquisition will allow Simmons, based in Pine Bluff, to enter the Oklahoma market.
As it had in 2015, McLarty Automotive remained in a buying mood in 2016, purchasing from Asbury Automotive in Atlanta five dealerships and two collision centers in central Arkansas, paying $41.5 million for the real estate alone, and $10.3 million for real estate associated with two other central Arkansas automotive dealerships.
Real estate transactions also figured prominently on the list, including a couple of shopping centers: the Northwest Arkansas Mall in Fayetteville ($39.5 million) and McCain Plaza in North Little Rock ($23.2 million).
No values were readily available for a number of deals, but they’re intriguing nonetheless for how they might affect the future of the buyers.
For example, Hugg & Hall Equipment of Little Rock bought RPM Services & Rentals of Houma, Louisiana, one of the largest independent equipment rental companies in the Southeast. Stephens Inc. of Little Rock, financial adviser to Hugg & Hall for the transaction, said the deal “supports Hugg & Hall’s strategic objectives in South Louisiana and increases Hugg & Hall’s footprint to 15 stores, positioning the Company to capitalize on favorable industry and regional trends.”
And the purchase by Harrison French & Associates of Bentonville of Allevato Architects of Franklin, Massachusetts, gives HFA, whose specialty is retail design — including for Wal-Mart, Walgreens, 7-Eleven, Subway and Sonic — a presence in the Northeast.
Volatility, Then & Now
The mergers and acquisitions message in 2017 is shaping up to be much the same as in 2016: volatility.
That’s the take of Marshall McKissack, the head of mergers and acquisitions at Stephens. “There was quite a bit of volatility,” he said. “Early in the year, it had to do with interest rates. I think everybody’s familiar with the volatility that we saw politically and geopolitically — really, across the globe, whether it was the U.S. elections or Brexit or currencies moving because of those things or constitutional reform in Italy.
“Uncertainty creates risk and volatility, and to me, that was probably one big trend.
“But underlying all of that, there continues to be a real basis for merger and acquisition activity,” McKissack said, and that goes back “to the tremendous amount of capital available, the capital is still relatively cheap, and buyers, whether they’re strategic or financial buyers, are still looking to put that capital to work at a return.
“On the strategic side, growth is still valued at a premium. M&A is a way to check a lot of those boxes. Those underlying trends continued in 2017. The fourth quarter was certainly a much better quarter, a lot of momentum. And a lot of momentum continues in the first quarter.”
As for this year, “the underlying themes or trends are still intact,” McKissack said. “I still expect there’s going to be some volatility around the geopolitical environment, whether it’s U.S., Europe, Asia, other places. That can create some uncertainty.”
However, he said, the new presidential administration and Congress, with a message of less regulation, lower taxes and changes in trade agreements, can create a positive environment for deal-making — or not, depending on where a company stands on those regulations.
These traditionally business-friendly attitudes are likely to propel M&A activity this year, McKissack agreed.
“I think you’ve seen it in the financial institution, bank market post-U.S. elections,” he said, noting a big improvement in stock prices of publicly traded companies. “And they’ve used that increased stock price and availability of capital to do deals in the back half of the fourth quarter, and we’ve certainly seen that trend in the first quarter, so for sure it’s going to drive M&A.”
“I think we’re still generally very positive and optimistic,” McKissack said. “Our business was a big year-over-year improvement in the fourth quarter, and we’re generally busy across all of our industry groups in the first quarter, so [there’s] a tremendous amount of activity and excitement in the M&A markets and we’re looking for a positive 2017.”